Q2 2012 Global Digital Advertising Update

Q2 2012 Global DigitalAdvertising UpdateAdobe® Digital Index

Adobe Digital Index Report Q2 2012 Global Digital Advertising UpdateTable of contents Executive summary1: Executive summary2: Overall search trends During Q2 2012 paid search continued to grow across industries. Spend grew by double digits4: Search by device type and ROI improved, driven by lower CPC rates. Bing/Yahoo’s share of click volume shifted up6: Facebook update slightly from Q1, and its share of overall search spend grew one percent year over year while Forecast for Q3-Q4 2012 Google’s share fell one percent. Implications7: Methodology As in Q1 2012, Q2 spend on tablet devices was particularly effective, generating higher conversion rates and ROI than spend on PCs and smartphones. Additionally, changes to Facebook’s platform generated a significant 338% increase in engagement, suggesting brands are finding additional value in social media. For digital marketers and advertisers, these findings have three implications: • Search, especially on mobile devices, should continue to be a major part of the marketing mix given growth in mobile device use and attractive ROI. • However, marketers can drive higher returns by optimizing spend across devices; search spend on tablets offers the most attractive opportunities. • Brands should adjust spending on Facebook to benefit from improvements to the Facebook platform.

Overall search trendsIn Q2 2012, search continued to grow in the U.S., U.K., and Germany. Growth continued inthese countries despite economic uncertainty, demonstrating the stability and importanceof search for digital marketers. Increases in ROI continue to drive this growth trend. As in Q12012, healthy room for additional growth in spending exists.1 Additionally, increased trafficacross mobile devices shifted search spend to smartphones and tablets, changing CPCs,especially for Google.Spend and ROI—Figures 1 and 2 show that U.S. search spend grew 13% over the prior year whileROI improved by 23%. Search spend in the U.K. and Germany grew 18% and 12% year over year,respectively. Spend share for Google and Bing/Yahoo were roughly flat over the prior quarter; Bing/Yahoo increased share 1% year over year, while Google’s share declined 1%. U.K. up 18% YoY Germany down 5% YoY U.S. up 13% YoY U.K. up U.S. up 23% YoY 5% YoY Indexed at 100% 100% Germany up 12% YoY Q2/11 Q3/11 Q4/1 Q1/12 Q2/12 Q2/11 Q3/11 Q4/1 Q1/12 Q2/12Figure 1—Spend by country Figure 2—ROI by countryClick volume and cost per click (CPC)—Click volume on Google dropped slightly compared to theprior quarter, but increased 32% year over year, as shown in Figure 3. Bing/Yahoo click volumesurged from the first quarter, ending at a 26% increase year over year. This surge in Bing/Yahoo’sclick volume may be due to algorithmic changes and lower CPCs, as Bing/Yahoo regained marketshare lost to Google in the prior two quarters. By the end of Q2, market click volume share forGoogle and Bing/Yahoo were 81.5% and 18.5%, respectively, as shown in Figure 4. Google up 32% YoY Q3 Q4 Bing/Yahoo Google 2011 2011 100% Bing/Yahoo up 26% YoY Q1 Q2 Q2/11 Q3/11 Q4/1 Q1/12 Q2/12 2012 2012Figure 3—Click volume by search engine, U.S. Figure 4—Click volume by search engine, U.S. Adobe Digital Index Report 2

Figure 5 shows that CPCs on Google continued to decrease, falling slightly over the prior quarter toend 13 percentage points down year over year, while Bing/Yahoo CPCs decreased from the priorquarter to end flat year over year. We attribute the decrease in overall Google CPCs to an increase inshare of mobile clicks – where CPCs are less expensive. The decrease in Bing/Yahoo CPCs isattributed to changes in the finance sector, where CPCs dropped considerably over the prior quarter. 2Figure 6 shows that in the U.K., click volume was flat compared to Q1 and increased 21% year overyear, while CPCs edged down 1% for the quarter, declining 11% year over year over year. Germanyclick volume increased 10 percentage points over the first quarter for growth of 32% year over year,while CPCs fell 3% from the first quarter for a 14% year over year decline. Clicks up 32% YoY 100% 100% 100% CPC down 11% YoY CPC down 14% YoY Google down 13% YoY Q2/11 Q3/11 Q4/1 Q1/12 Q2/12 Q2/11 Q3/11 Q4/1 Q1/12 Q2/12 Q2/11 Q3/11 Q4/1 Q1/12 Q2/12 Search engine [U.S.] U.K. GermanyFigure 5—CPC, U.S. Figure 6—Click volume and CPC, U.K. and GermanyIndustry breakdown—Figure 7 show performance trends for the automobile, financial services, andretail industries in the United States. The auto industry saw a robust increase in spend, up 28% yearover year, consistent with broader recovery in this industry. The financial services and retailindustries saw 5% and 14% increases in spend, respectively, year over year. ROI fell 9% year overyear for the automobile industry, but increased 50% and 25% in financial services and retail,respectively. The decline in spend and increase in ROI over the prior quarter for financial servicesresults form more effective spend optimization. Growth in both search spend and ROI in financialservices and retail signals that these industries have additional opportunity for spending growth inthe coming quarters. Spend up 28% YoY ROI up 9% YoY ROI up 50% YoY 100% 100% 100% Spend up 14% YoY Spend up 5% YoY ROI fell 9% YoY Q2/11 Q3/11 Q4/1 Q1/12 Q2/12 Q2/11 Q3/11 Q4/1 Q1/12 Q2/12 Q2/11 Q3/11 Q4/1 Q1/12 Q2/12 Automobile [U.S.] Retail [U.S.] Financial Services [U.S.]Figure 7—Spend and ROI by industry Adobe Digital Index Report 3

Search by device typeWhile overall search spend increased year over year across PC, smartphone, and tabletdevice types, conversion rates, CPCs, and ROI for these devices varied widely. Conversionrates for tablet campaigns, relative to PC campaigns, rose over the past quarter, creating asurge in tablet ROI despite the fact that tablet CPC remain below those of PCs. Thisindicates that there are significant opportunities for marketers to drive higher ROI byshifting spend to tablets, findings consistent with those in prior Adobe Digital Index reportson the use of tablet devices and returns on tablet search spend.3Conversion rates relative to PC desktops by device and industry—Figure 8 shows that acrossindustries, overall tablet conversion rates were approximately 20 percentage points higher thanthose of PCs. Likewise, smartphone conversion rates were significantly lower across the board, withoverall conversion rates approximately 42 percentage points lower than PC conversion rates. 120% PC = 100% 122% PC = 100% 58% 62% Overall [U.S.] Financial Services [U.S.] 119% PC = 100% 120% PC = 100% 57% 63% Retail [U.S.] Overall [U.K. and Germany]Figure 8—Conversion rates by device and industry Adobe Digital Index Report 4

CPC and ROI by device and vertical—As shown in Figure 9, overall smartphone and tablet CPCs inthe United States were 56% and 71% of CPCs for PCs, respectively. Both smartphone and tablet CPCswere higher in the financial industry than in the retail. Because both smartphone CPCs andconversion rates are significantly lower than those for PCs, overall smartphone ROI is similar to ROIon PCs. In contrast, tablets have lower CPCs but higher conversion rates, increasing tablet ROI tonearly 70% higher than that of PCs, as shown in Figure 10. PC = 100% PC = 100% PC = 100% 71% 79% 69% 56% 71% 49% Overall [U.S] Financial [U.S.] Retail [U.S.]Figure 9—CPC by device and industry 103% 155% 88% 116% 168% 173% PC = 100% PC = 100% PC = 100% Overall [U.S] Financial [U.S.] Retail [U.S.]Figure 10—ROI by device and industry Adobe Digital Index Report 5

Facebook updateBrands continued to invest in Facebook to drive fan growth, which increased 21% over the priorquarter and 84% year over year. This indicates that brands continue to explore how to useFacebook as an effective advertising channel. Facebook also showed significant increases inengagement with growth of 60% over prior quarter and 338% year over year, as shown in Figure 11.We surmise that increased engagement rates result from platform changes made in the last twoquarters (e.g. Timeline), use of new acquisition and engagement metrics, and more effectivesocial marketing by brands. Increases in engagement levels in future quarters would indicatethat Facebook is becoming a more valuable advertising marketing channel than in the past. 100 % 99% 91% 273% 438% Q2 2011 Q4 2011 Q2 2012Figure 11—Average brand post engagementForecast for Q3-Q4 2012The prognosis for search in the United States is bright for the remainder of 2012: we expectsearch spend to increase 10-15% over prior year. In Europe, however, growth in search faceschallenging macro-economic headwinds that may slow the growth rates seen year to date.Smartphone and tablet traffic will represent 20% of all traffic from search by end of year, andspend on these devices will lag slightly behind at 16-20% of all search spend. We projectFacebook brand pages to grow an additional 45% by the end of 2012.ImplicationsThe findings within this report suggest three implications for how digital marketers andadvertisers optimize digital marketing spend across media channels and devices. • Search should continue to be a critical part of the marketing mix, as consumers increase their use of mobile devices and ROI continues to increase. • Marketers are not optimizing spend across devices. Savvy marketers should seize opportunities to increase overall ROI by increasing or shifting search spend to tablet devices. • Changes to Facebook’s platform have improved opportunities to engage consumers. Adobe Digital Index Report 6

Methodology Our analysis of Facebook performance is based on index derived from data captured by Adobe AdLens and Adobe® Social, which are part of the Adobe® Digital Marketing Suite. The index’s data compromises over 250 billion impressions and activity of 46 million fans for 225 companies in the automotive, CPG, financial services, media and entertainment, and retail industries. Key terms in this report are defined as follows: • Cost per click (CPC)—The amount paid by a marketer per user click on a paid search ad. CPC is determined by an auctioning process and is a good indicator of market conditions. Increases in CPC indicate advertisers are willing to spend more on advertising, and decreases indicate that advertisers are willing to spend less. • Return on investment (ROI)—A measure of profitability based on how much a marketer receives in terms of results compared to how much is invested. Also known as a measure of efficiency. • Spend share—The amount of share that marketers spend buying keywords on a particular search engine as calculated by this formula: particular search engine spend/total search engine marketing spend. About Adobe Digital Index Adobe Digital Index publishes research on digital marketing and other topics of interest to senior marketing and e-commerce executives across industries. Research is based on the analysis of select, anonymous, and aggregated data from over 5,000 companies worldwide that use the Adobe Digital Marketing Suite, powered by Adobe technology and solutions, to obtain real-time data and analysis of activity on their websites. For additional information about this report, contact Austin Bankhead, director, Adobe Digital Index, at DigIndex@adobe.com. About Adobe Digital Marketing Suite Adobe® Digital Marketing Suite offers an integrated and open platform for online business optimization, a strategy for using customer insight to drive innovation throughout the business and enhance marketing efficiency. The Digital Marketing Suite consists of integrated applications to collect and unleash the power of customer insight to optimize customer acquisition, conversion and retention efforts, as well as the creation and distribution of content. For example, using the Digital Marketing Suite, marketers can identify the most effective marketing strategies and ad placements as well as create relevant, personalized, and consistent customer experiences across digital marketing channels, such as onsite, display, email, social media, video, and mobile. The Digital Marketing Suite enables marketers to make quick adjustments, automate certain customer interactions, and better maximize marketing ROI, which, ultimately, can positively impact the bottom line. 1 Adobe® Digital Index, “Global Digital Advertising Update Q1 2012”, April 2012 2 Because CPCs in the financial sector tend to be much higher than average, fluctuations in CPCs typically have a significant impact on the CPC average for the overall index. 3 See Adobe® Digital Index reports: “The Impact of Tablet Visitors on Retail Websites”, January 2012, “Global Digital Advertising Update Q1 2012”, April 2012, and “How Tablets Are Catalyzing Brand Website Engagement”, May 2012. Adobe and the Adobe logo are either registered trademarks or trademarks of Adobe Systems Incorporated in the United States and/or other countries. AllAdobe Systems Incorporated other trademarks are the property of their respective owners.345 Park AvenueSan Jose, CA 95110-2704 © 2012 Adobe Systems Incorporated. All rights reserved. Printed in the USA.USAwww.adobe.com 7/12 7

Q2 2012 Global Digital Advertising Update

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